A look inside India's Solar Mission phase 210. December 2012 | Markets & Trends, Global PV markets, Top News | By: Jonathan Gifford
Hari Manoharan, a consultant with RESolve Energy Consultants tells pv magazine why the Jawaharlal Nehru National Solar Mission should be considered a success and why the domestic content requirement is likely to remain.
The previous Solar Mission fell short of its targeted PV capacity. Do you think this second draft has a greater potential to hit its goals?
Firstly under phase 1, batch 1, of the 150 MW of PV capacity that was allocated, 130 MW has been commissioned till date. Of the remaining 20 MW capacity, two projects of 5 MW each have been cancelled and a further two projects remain delayed with MNRE proceeding with attempting to secure the bank guarantees. Considering this is the very first batch of projects, I would assume this (85% of the capacity) is a very good number. In addition to this, 48 MW (54 MW was allocated) was added through the migration scheme and about 90 MW (98 MW was allocated) was added through the RPSSGP scheme. I would consider this a success rather than a failure and that the promised capacity under batch 1 was delivered to very acceptable levels.
Secondly, under phase 1, batch 2, about 350 MW of PV capacity has been allocated. Of this, one project (10 MW) was cancelled reducing the allocated capacity to 340 MW. Of this, all 27 projects totaling 340 MW have thus far have achieved financial closure (deadline was September 2, 2012) and are on track to meet the commissioning deadline. All in all, in terms of PV at least, I would say phase 1 has been a success.
The reason for the perceived failure of meeting the targets is likely because of the slow commissioning of the solar thermal (CSP) projects. About 470 MW of capacity is scheduled to come up using CSP technology and the deadline for this is May 2013. We will have to wait and see if these projects come up as there are some ongoing technical/financial issues.
The targets under phase 2 is set to be achieved through investment by the central government (40%) and initiatives taken by the state governments (60%) to fulfill their respective RPOs. The second phase (in terms of PV), much like the first phase, is very likely to meet the targets set forth (central targets). With the falling solar PV costs and the introduction of viability gap funding (VGF), and also considering the fact that the industry has matured tremendously, the targets set are very likely to be met. The final success of this phase would then be measured by how well the states manage to fulfill their solar RPO targets as this forms a significant portion of the total capacity addition targets.
What prospects are there for the draft phase 2 Solar Mission to free up cheaper financing for PV in India?
There has been no explicit mention of cheaper financing for solar projects in the draft document, one can only speculate the likely developments in this space.
Local financial institutions have always been wary about financing solar projects in the country. However, considering the relative success of phase 1 and the fact that the solar industry has matured considerably since its infancy, one can safely say that the various financial institutions understand the various nuances associated with the sector now.
Projects coming up under the central policy in phase 2 would have a very good payment security mechanism associated with them. Furthermore, the introduction of the VGF scheme is also likely to reduce the perceived risks associated with the solar projects. As the risks are likely to be lower, the interest rates offered by the local financial institutions could come down (they presently hover around 13% to 14%).
In addition to this, the Capacity Utilization Factor (CUF) associated with the projects have been in line with predictions which suggests the revenue streams can also be predicted with high accuracy (provided payment security is not a concern as is in the case of central projects). This would also greatly reduce the risk perception thereby helping lower interest rates.
Does phase 2 still allow for financing from the US Ex-Im bank?
The reason many projects in India went ahead with Em-Im financing in the first round was primarily due to the low interest rates available. The side effect was this was a skewed market share in favor of thin film technologies (largely imported from U.S., read: First Solar). Ex-Im financing dictates that the financing would be available only for those who import the products that were manufactured in the U.S. As such, the financing then would depend on what option (in terms of Domestic Content Requirements) MNRE settles with.
Do you think under this phase 2 draft Solar Mission, it is likely that domestic content requirements will be waved?
I would imagine that this would be unlikely. In fact, MNRE has given six different options on how the domestic content requirements are likely to be imposed in the draft document itself. The various DCR options proposed are as follows:
- For all PV projects, cells and modules produced in India shall be used.
- Price preference for domestic manufactured cells/ modules.
- Percentage of domestic content in cost terms (say 50%) for both PV and thermal technologies.
- Percentage of cells manufactured in India.
- Some batches with 100% domestic content requirement.
- For thermal technologies material equivalent to 50% of supply costs (excluding land, taxes, erection, financing, soft costs, etc.) should be manufactured in India during phase 2.
What effect do you think these options can have?
I am going to assume that thin film technologies would also fall under the DCR this time round (thin film was exempted under phase 1) even though this has not been mentioned explicitly. So these are my thoughts on the likely implications of the various DCR options mentioned previously:
Option 1,2 and 5 would mean that most of the modules would be procured in India and would directly translate to increased manufacturing capacity additions in the country (currently, it stands at about 1500 MW). This would also greatly benefit the domestic inverter manufacturers and we could see some drastic growth in this sector in India.
Option 3 is very intriguing, the cost contribution for modules (as a percentage of total project cost) has dipped below 50% on average. In this scenario, developers could still import modules (at low interest rates from U.S. Ex-Im bank for instance) and ensure that other components used are manufactured locally. This could mean that inverter manufacturers (the next biggest contributor to cost of PV power plant) with manufacturing bases within the country are likely to be the biggest winners.
Option 4 – presently, the PV cell production capacity in India is rather low (less than 700 MW). If this option is implemented, then it would be very hard for developers to source the cells within the country. This also means that the cells would not be price competitive with the offering from the rest of the world, perhaps affecting the cost of solar PV in India.
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